Integrated thinking in action:
A spotlight on Royal Schiphol Group
Case study Case studies from the
The Integrated Thinking and Strategy Group (a special interest group of the IIRC’s Business Network) brings together some of the world’s most innovative companies so that they can collaborate, learn from each other, challenge each other’s thinking and share leading practices between themselves and those who follow them.
Integrated thinking is engrained in the discipline of making a deliberate and coordinated effort to connect the organization’s strategy, governance, performance and prospects. It is the active consideration by an organization of the relationships between its various operating and functional units and stores of value – which the IIRC refers to as ‘capitals’ in the International
It is used by businesses to improve decision-making, accountability and communication. It is therefore essential to the development of strategy and provides a valuable connection to the board.
The project aims to assess how integrated thinking is embedded within organizations through a series of interviews to understand: • What led the organization to embed integrated thinking • How they used integrated thinking to shape their strategy • How integrated thinking has helped them deploy their strategy • What the benefits have been. Integrated thinking A spotlight on Royal in action: Integrated thinking Group Schiphol in action: a spotlight on Royal Schiphol Group
Overview 30-second snapshot into integrated thinking at Royal Schiphol Group
Royal Schiphol Group is an airport company head- Integrated thinking has supported Schiphol in quartered in the Netherlands, with Amsterdam furthering their important socio-economic initiatives. Airport Schiphol as its main airport. The Group also Though the company ensures optimal air connec- owns Rotterdam The Hague Airport and Lelystad tivity, Schiphol is aware of the impact this has on the Airport, holds a majority stake in Eindhoven Airport quality of life on local residents, as well as the wider and has international participations and activities. environmental impact of air travel. Integrated thinking has been a key tool in developing Schiphol’s holistic understanding of their business and has supported their progress in providing the most sustainable and high-quality airports.
The conversations summarized in this case study took place throughout March and May 2020 between Simon Theeuwes, then Senior Manager Corporate Treasury & Investor Relations at Royal Schiphol, Marianne de Bie, Senior Advisor Corporate Affairs at Royal Schiphol, Professor Cristiano Busco, LUISS and Roehampton University, and Elena Sofra, IIRC. 4 A spotlight on Royal Schiphol Group thinkingIntegrated in action: on Royal A spotlight 5 Integrated thinking in action: A spotlight on Royal in action: Integrated thinking Group Schiphol Deep dive into integrated thinking at Royal Schiphol Group 10 minute read
What led Royal Schiphol Group How did Royal Schiphol Group to embed integrated thinking? approach integrated thinking?
Schiphol started its integrated thinking journey back Schiphol undertook several steps to foster integrated in 2010. They identified the need to undertake a deep thinking. Firstly, the organization identified the capitals analysis of why the company exists and redefine their involved in its value creation process through a review purpose of ‘Connecting your world’, which is focused of its business model. Over the years the business on how to create connections among geographical and has gradually refined the definition it gives to the cultural distances. capitals in accordance with its evolving strategy. In 2019, the organization produced a value creation Redefining their purpose, in turn, further enabled model (Figure 1), which depicts how the capitals serve Schiphol to reinvigorate their strategy, value creation as inputs and work with and for the stakeholder groups. model and ultimately performance. The latest milestone in its integrated thinking journey is its 2050 Vision. Finalized in 2019, the 2050 Vision drives the business towards its ambition to operate the world's most sustainable, high quality airports that will enable international trade, tourism and knowledge exchange to flourish and provide top quality aviation infrastructure and facilities for passengers and cargo.
Contents Introduction About us and our Why Our results Governance Socio-economic accountability Financial Statements Royal Schiphol Group - 2019 Annual Report 5
Input Added value Output Outcome & Impact
Destination Our Vision 2050 Top Performance Indicators Material aspects
ICA destinations – Network of Wellbeing 3 138 destinations – Connecting m 1 – Accessibility – Environmental Infrastructure capital Why Ambition impact and – Airside Connecting Creating the world’s most hindrance – Landside your world sustainable, high quality airports – IT Quality of Network Prosperity – CO and air CO2 emissions 2 – Business 4 Business model 169 Kt quality climate Social capital – Sustainable – Regional aviation development – Circular economy and jobs
5 Reputation score – Noise Human capital – Community and UN Sustainable Quality of Life 6.5 support base Development Goals (SDGs) 6 Intellectual capital On-time – Airport capacity Performance 66.5% 7 Business areas Natural capital – Energy Net Promoter – Customer – Raw materials Quality of Service Score appreciation 36 8 Financial capital Aviation Consumer Real Alliances & Safety Index – Safety & security Products and Estate Participations Services 130% Stakeholders
local residents Key risks Governance Trends & Developments Employee – Employment airlines passengers Promoter Score practices
7.8 Safety & Robust organisation Return on Equity1 – Business continuity 8.3% – Responsible business employees shareholders – Financial solidity
1 Normalised ROE: 5.5%
Figure 1 For a detailed view of the 2019 value creation model please consult Schiphol’s 2019 Annual Report, page 5 Connecting worlds is all about integrated thinking, in aspiring to do so we intend to connect stakeholders, to connect trade, to connect a broader variety of actors which are part of our value creation process.
Marianne de Bie Senior Advisor Corporate Affairs Contents Introduction About us and our Why Our results Governance Socio-economic accountability Financial Statements Royal Schiphol Group - 2019 Annual Report 32
Our performance in 2019
Each year, the Supervisory Board approves the Management Both the TPIs and the major deliverables set out the course for the 2019 was the first year in which the target setting consisted of Agenda, which, since 2019, includes the management’s priorities entire Schiphol organisation. The evaluation is also used to TPIs and major deliverables. This new way of target setting has 7 translated into Top Performance Indicators (TPIs) and major determine the variable remuneration. More information can be been experienced positively overall. The target setting for 2020 deliverables. The TPIs are divided into five key focus groups: local found in the section on Remuneration. therefore again includes TPIs and major deliverables, though with residents, passengers, airlines, employees and shareholders. some changes in calculation methods. Three of these indicators are overarching: safety, network and Concise background information on the results achieved for each sustainability. The TPIs are set out on this page in detail. priority is set out below. Integrated thinking in action: A spotlight on Royal in action: Integrated thinking Group Schiphol TPI performance 2019
Priorities Priorities
Safety Airlines Index Safety Incidents: 130.0% (target: 88.3%) On-time performance: 66.5% (target: 71%) This index is based on the change in the number of lost-time injuries among Schiphol The punctuality of outbound traffic is the percentage of commercial flights that depart on employees1 compared with the previous year and the change in the number of runway time3(this is based on the sector-wide standard D15). incursions at Amsterdam Airport Schiphol compared with the previous year. Local residents Sustainability Reputation score: 6.5 (Target:7.3)
CO2 emissions Royal Schiphol Group: 169kt CO2 This score is based on reputation and engagement surveys and the number of people that filed 3,5 CO2 emissions taking into account Scope 1 (natural gas and fuels used by own vehicle fleet), one or several reports with Bewoners Aanspreekpunt Schiphol (BAS) . Scope 2 (electricity) and selected items of Scope 3 (diesel fuelled at airside, commuter traffic and Employees business travel by own car or aircraft)2. Employee Promoter Score: 7.8 (Target: 7.2) Network The Employee Promoter Score (EPS) measures employee engagement, employership and Number of ICA destinations:138 (target: 135 ICA, while maintaining 300+ destinations in total) commitment. It is calculated on a 0-to-10 scale based on the average score of a set of Schiphol- The number of direct intercontinental destinations for passengers and cargo3. specific value drivers generated by a survey conducted in April 20196. Passengers Shareholders Net promoter score: 36 (target: 34) Return on equity (ROE): 8.3% (Target: 6.0%). Normalised for fair value changes and other one- The Net Promoter Score (NPS) measures how likely passengers are to recommend Schiphol as offs ROE: 5.5% (Target: 6.4%) an airport. Customers are asked: “On a scale of 0 to 10, how likely would you be to recommend Financial return for shareholders based on net result adjusted for fair value gains and losses on this airport to friends, family and colleagues?” Passengers who give a score under or equal to 6 investment property, divided by average equity7. are detractors, 9 or 10 are promoters. The score is determined by subtracting the percentage of 1 Concerns Schiphol Nederland B.V. employees working at Amsterdam Airport Schiphol. customers who are detractors from the percentage who are promoters. The result is a score 2 The scope of this TPI is the Dutch Airports of Schiphol Group. 3,4 between -100 and 100 . 3 The scope of this TPI is Amsterdam Airport Schiphol. 4 Please note that the methodology for determining NPS is the same as the previous year, though the definition has been clarified. 5 Compared with the annual report 2018, there is a slight change in definition. The number of people that filed one or several reports with BAS is used as the BAS metric rather than the number of complaints registered at BAS. 6 The scope of this TPI is Amsterdam Airport Schiphol, Rotterdam-The-Hague Airport and Lelystad Airport. 7 The scope of this TPI is Royal Schiphol Group.
Figure 2 For a detailed view of the Top Performance Indicators please consult Schiphol’s Annual Report, page 32
How has integrated thinking helped Royal Schiphol Group deploy its strategy?
Integrated thinking has enabled Schiphol to These three cornerstones rest on a foundation of articulate why it exists by understanding its value two key enablers: safety and a robust organization. creation process in a holistic way. Acknowledging its important economic and social role has led Schiphol Schiphol’s strategy addressed the challenges in 2018 to ground its 2050 Vision in three key areas: the further and 2019, before COVID-19, of a growing number strengthening of the quality of its network, improving of passengers, as well as the limits on Schiphol's air the quality of life both locally and globally, transport movements, by monitoring and tracking its and enhancing the quality of service. performance through its Top Performance Indicators (TPIs).
The TPIs are grouped according to the qualities and the enablers of Vision 2050 and measure the performance When we define our of the organization over the year (Figure 2). strategy, we look at the The TPIs are divided into five key focus groups: local residents, passengers, airlines, employees and capitals to understand how shareholders. Three of these indicators are overarching: safety, network and sustainability. These indicators, they ought to be assessed alongside the major deliverables, have enabled the to feed into the strategy, introduction of a consistent language across Schiphol Group, the alignment of all Group activities and a focus we start to think about on the most value-adding activities. where we want to be in TPIs are discussed on a quarterly basis by terms of outcome, and management, thus enabling their fine-tuning where it is required in relation to the desired performance. of course output, in the Both the TPIs and the major deliverables set out the medium and long term. course for the entire Schiphol organization.
Marianne de Bie Senior Advisor Corporate Affairs The 2050 Vision of Schiphol is all about integrated thinking. The qualities and enablers of this very vision drive our business organization by taking into account the medium and long term. Our Top Performance Indicators monitor our performance on the targets most important for our stakeholders. Indeed, integrated thinking is about this, holistic value creation and building a plan for the future.
Simon Theeuwes Senior Manager Corporate Treasury & Investor Relations 9 Integrated thinking in action: A spotlight on Royal in action: Integrated thinking Group Schiphol How has embedding integrated thinking benefitted Royal Schiphol Group?
The TPIs are the ultimate result of embedding integrated thinking within the organization. According to both Marianne and Simon, defining the TPIs has been challenging. Setting targets has implied finding a shared understanding of what the targets mean to the business. Drawing an overall consensus on the definitions of those targets has proven challenging, especially when the performance related to them has not been the desired one. Nonetheless, setting clear definitions of where the organization wants to be is crucial and ensures a consistent performance in relation to them.
The challenge of defining the TPIs has shed light on an interesting aspect of the overall process. Having to find a common understanding among the several conflicting views and opinions has revealed how much this process is embedded within the business. Many more people are involved and have the chance to – and indeed choose to – share their opinion on the value created beyond the financials.
Despite the challenges, a key opportunity that has been identified to enhance integrated thinking within the business is linking risks to this process. Schiphol currently takes into account key risks through a risk management approach and will, going forward, identify risks specifically linked to the TPIs. Such an unravelling of the interrelatedness among the risks, the capitals and the TPIs is included in Schiphol’s future plans to promote the long-term success of the business. The Top Performance Indicators anchor the value creation. Our remuneration policy is linked to the Top Performance Indicators to such an extent that the qualitative Top Performance Indicators carry more weight than the financial Top Performance Indicators – the ROE. Indeed, this reflects the extent to which the multi-capital approach is embedded within Schiphol.
Simon Theeuwes, Senior Manager Corporate Treasury & Investor Relations The content and the assessment of the Top Performance Indicators is a challenging journey, yet setting the definitions gives a clear-cut path of where we are and where we want to be. We are continuously seeking the most practical way to pave our multi-capital creation journey.
Marianne de Bie Senior Advisor Corporate Affairs
The interesting thing about the process of defining Top Performance Indicators is that many more people are involved and have their opinion and a lot of discussion takes place over this. People tend to debate a lot over the value created, beyond the financial.
Simon Theeuwes Senior Manager Corporate Treasury & Investor Relations The International Integrated Reporting Council (IIRC) is a global coalition of regulators, investors, companies, standard setters, the accounting profession, academia and NGOs. The IIRC’s vision is a world in which capital allocation and corporate behaviour are aligned to the wider goals of financial stability and sustainable development through the cycle of integrated reporting and thinking.
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